| Q3 2009 |
中文版 |  |
In conjunction with a stock market up nearly 50% from its lows and an economy showing signs of stabilization, it appears things are getting better for the U.S. IPO market too. After a dismal Q1, with only 2 recorded IPOs, 12 deals were completed in Q2. Total funds raised on IPOs in the second quarter of 2009 increased to US$1.6 billion, a 5-fold increase from the first quarter. The IPO market continued its rebound in the third quarter: 25 filings occurred in July and August, while five companies raised a total of US$3.0 billion in the week of September 24, 2009 alone. Moreover, the pipeline of companies planning to go public in the US has also been growing over the past two months. According to Dealogic, 20 companies have filed new registration statements with the SEC since the beginning of August, compared with a total of 12 filed in the first seven months of the year. Moreover, venture-backed companies raised the most in the third quarter via IPO since 2007 - US$451.3 million through two IPOs, according to Dow Jones VentureSource.
IPO Activity (U.S.) |
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|
Q1 2009 |
Q2 2009 |
Q3 2009 |
IPO Number |
2 |
12 |
13 |
Fund Raised (US$ Billion) |
0.7 |
1.6 |
5.3 |
Source: Hoover’s IPO Scorecard |
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Likewise, while China’s market sentiment remained fragile during the first half of the year, evidence of a turnaround started to appear thereafter: 23 IPOs were completed in the first half of the year, a 62% drop from the 60 recorded in H1 2008, but 15 IPOs got done in Q2 2009, almost twice as many as in Q1, and 11 and 13 in July and August, respectively. In the third quarter, 47 IPOs raised US$15.4 billion. Notably, the world’s two largest IPOs this year also came from China in September: China State Construction Engineering (US$5.1 billion) and Metallurgical Corp of China (US$2.8 billion).
IPO Activity (China) |
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|
Q1 2009 |
Q2 2009 |
Q3 2009 |
IPO Number |
8 |
15 |
47 |
Fund Raised (US Billion) |
0.2 |
2.4 |
15.4 |
Source: ChinaVenture |
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Statistics on venture-backed IPOs confirm the aforementioned trend. While there was only one VC-backed IPO in Q1 2009, 4 were completed in the second quarter, when a total of US$1.6 billion was raised at the time of the IPO. Even though M&A exit still prevails (Q2 2009 counted a total of 10 such exits for a total of US$2.3 billion), we expect the introduction of the Growth Enterprise Market (GEM) to continue to offer more IPO exit opportunities in the future.
In Q2 2009, 21 private equity investments were successfully closed, up from 12 done in the previous quarter. The total investment amounted to US$1.5 billion, 276% more than in Q1 2009. As far as industries are concerned, manufacturing (particularly car manufacturing), energy and mining continue to attract significant interest, with 7 deals in total. The overall impression is that traditional industries may be experiencing a bit of a comeback, as investors begin to move away from some of the hotspot industries that attracted capital in the previous two quarters.
PE Investment in China |
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|
H1 2008 |
H2 2008 |
Jan-Jul 2009 |
Number of Deals |
111 |
48 |
39 |
Fund Raised (US$ billion) |
7.1 |
3.5 |
2.3 |
Source: ChinaVenture |
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Venture capital activity experienced a dramatic drop in China in the first quarter this year. Only 14 development stage deals and 10 expansion stage deals closed during this period, representing a 56% and a 68% decrease quarter on quarter, respectively. Once again, however, the second quarter started to show encouraging signs of recovery. Between April and June this year, the number of VC investments rose to a total of 36, up 29% from the 28 done in the previous quarter, while in July and August 26 and 22 investments closed, respectively, raising a total amount of US$320 million. Part of this recovery stems from the increasingly large contribution and active participation of RMB-denominated funds.
VC Investments in China |
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|
H2 2007 |
H1 2008 |
H2 2008 |
Jan-Aug 2009 |
Number of Deals |
205 |
155 |
163 |
125 |
Fund Raised (US$ billion) |
1.9 |
1.3 |
1.9 |
0.9 |
Source: ChinaVenture |
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As to security types, common stock issuances are still dominating this market, with 177 transactions and a total amount raised of US$6.73 billion. Convertible debt followed, with 57 transactions and US$2.24 billion raised, then preferred convertibles (49 transactions). Interestingly, though, preferred convertibles scored by far the highest average deal size, with US$107 million. |
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In the first half of 2009, the number of reverse mergers experienced a dramatic drop, with 72 deals closed, compared to 101 transactions in the same period of 2008.
Chinese companies were certainly not immune. Only 5 reverse mergers with Chinese targets were successfully closed in Q2 2009, 50% less than in the first quarter and fewer than in any in quarter since 2005.
Furthermore, Chinese companies faced serious difficulties obtaining financing at the time of the merger. PIPE investments in conjunction with reverse mergers are at an historic low, and a far cry from the heydays of 2007. In the second quarter of 2009, for example, 11 financed reverse mergers closed, raising a total of US$45.4 million, a mere US$4.1 million on average.
Fundraising activity in the first half of the year in China for VC and PE funds slowed significantly. According to ChinaVenture, 43 funds raised US$3.9 billion, 41% less than in the same period last year.
Among the newly raised funds, industry-focused and venture funds continued to be most popular, particularly the ones with a focus on IT, healthcare, clean energy and chain stores development. It also appears that the Chinese government continues to act as a major capital provider for China’s VC and PE market.
- On July 26, 2009, China Securities Regulatory Commission (“CSRC”) started to formally accept applications for issuances on the Growth Enterprise Market, or GEM. GEM opens up a new chapter for China capital markets and will potentially represent a strong driving force for SMEs and VC/PE investment firms alike. As of September 12, 155 enterprises submitted their applications to CSRC, 149 of which have already received notifications of acceptance by CSRC. Of 149 enterprises, 68% are from companies in service industries of some type, such as electronic information, new materials, and bio-medicine. The manufacturing sector in general accounts for about 15%, while emerging industries such as new energy, cultural and educational media, modern agriculture, and the like cover the rest. The proportion of state-controlled companies, foreign-invested companies and private companies are 9%, 8% and 83%, respectively. Among the first companies that have been approved to be listed on the GEM, there are Beijing Ultrapower Software, Lepu Medical Technology, and Qingdao Tgood Electric.
- “Foreign Enterprises or Individuals in China to Establish a Partnership Approach to Business Management (draft)” is in its late stage of approval by The State Council. The new rules will allow foreign private equity firms to set up local fund management units in the form of a locally registered partnership. Foreign PE firms will then be more easily allowed to raise RMB Funds through their locally established entities. Firms that have recently announced such plans include Morgan Stanley, KKR, Carlyle Group, Black Stone, DFJ, PraxCapital, and Texas Pacific Group. Hong Kong based First Eastern Financial Investment Group has already been approved to establish a Wholly Foreign Owned Enterprise in Shanghai.
Global private equity investments in Cleantech showed signs of fatigue in the third quarter. Total investments dropped to a 12-month low of just US$86 million in August - a two third decline from the US$266 million deployed in July and a 60 per cent decrease year-on-year. On the other hand, M&A activity in the sector increased, with deals collectively valued at US$17.4 billion in August, up from US$1.8 billion in the previous month.
Global Private Equity Investment Activity in Cleantech Sector |
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|
Q1 2009 |
Q2 2009 |
Jul 2009 |
Aug 2009 |
Number of Deals |
30 |
43 |
12 |
9 |
Total Deal Value (US$ million) |
593 |
1016 |
1016 |
352 |
Source: ZEPHYR published by BvDEP |
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Global M&A Activity in Cleantech Sector |
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|
Q1 2009 |
Q2 2009 |
Jul 2009 |
Aug 2009 |
Number of Deals |
244 |
248 |
93 |
59 |
Total Deal Value (US$ million) |
6,591 |
4,643 |
1,844 |
17,395 |
Source: ZEPHYR published by BvDEP |
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In the open market, peer companies and industry insiders are closely watching the post-IPO performance of A123 System. In September, the Watertown-based lithium-ion battery marker went public through an IPO with Morgan Stanley, Goldman Sachs, Merrill Lynch and Lazard as joint underwriters. As the first venture-backed Cleantech company to go public this year, many industry insiders consider the stock sale as a bellwether for Cleantech investments. A123 raised US$380 million by offering roughly 28.2 million shares (2.5 million shares more than expected) at $13.50, far above its originally proposed price range of $8.00-$9.50, which seems to reflect investors’ continued positive outlook on the lithium-ion battery market and potentially general Cleantech market.
Puda Coal, Inc. (PUDA), On September 22, 2009, Puda officially started to trade in AMEX with a new trading symbol of “PUDA”. Earlier this year, Puda agreed to acquire 18% equity in Shanxi Jianhe Coal Industry Ltd. Co. for RMB100 million (around US$ 14.6 million). With this acquisition, Puda now appears to be well-positioned with a margin-improving mining interest to combat the slowdown in demand. Company recorded revenue of US$ 48.0 million and net income of US$ 1.7 million for the quarter ended June 30, 2009.
Omnia Luo Group, Ltd. (OLOU), reported revenue of US$4.5 million and net income of US$0.18 million for the 6 months ended June 30, 2009. As of June 2009, Omnia Luo had 165 stores in total, including 27 company-owned stores, 31 co-owned stores and 107 independent distributor stores, spread across 25 provinces.
Coming Events
AVCJ - 22nd Annual Private Equity & Venture Forum
November 11th – 13th, 2009, Hong Kong
Zero2IPO - 9th China Venture Capital & Private Equity Annual Forum
December 9th – 10th, 2009, Shanghai